The National Bank of Poland (NBP) has cut its reference interest rate by 50bp to 5.25% (chart) - the first reduction in two years - on May 7.

The move matched market expectations following comments from Governor Adam Glapiński, who said that easing inflation and slower wage growth had created conditions for monetary easing sooner than anticipated.

“Taking into account incoming information, including lower current and forecasted inflation, decreasing wage growth and weaker data on economic activity, in the Council’s assessment, the adjustment of the level of the NBP interest rates became justified,” the central bank said in a statement.

The NBP added that future decisions would depend on “incoming information regarding prospects for inflation and economic activity.”

“Developments in demand pressure and situation in the labour market in subsequent quarters, as well as the level of administered energy prices and further fiscal policy measures remain an uncertainty factor. Uncertainty also stems from inflation developments abroad, following, among others, from changes in trade policies of major economies,” the NBP also said.

Poland’s inflation rate eased to 4.2% in April, according to a flash estimate from the statistical office GUS, while core inflation fell to around 3.5%, the upper limit of acceptable deviation from the NBP’s 2.5% target.

After three years of double-digit increases, wage growth has slowed to single digits, and first-quarter GDP growth was weaker than in the final quarter of 2024.

Most analysts expect the NBP to follow this initial cut with further reductions later in 2025, though the timing remains uncertain.

Capital Economics, a London-based consultancy, said that “investors’ expectations for interest rate cuts have probably gone too far.”

“Governor Glapiński himself has suggested that any initial rate cut could be a one-off adjustment, suggesting that a pause at upcoming meetings is possible," it said.

The firm pointed to still-elevated wage growth, a tight labour market and a “very loose” fiscal stance, and said that headline inflation would not fall sustainably into the 1.5–3.5% target range until 2026.

“Our new working assumption is that the policy rate is lowered to 4.75% by the end of this year. That is a bit below our previous forecast of 5%, but is a more hawkish view than discounted in financial markets,” it said.

Poland's Bank Millennium offers a slightly different forecast.

“We maintain our expectation that the next rate cut will occur in June or July, but on a smaller scale, at 25 basis points. After the summer break, rate reductions should continue. In our view, the reference rate will end the year at 4.50%,” the bank said.